China's ETF (exchange-traded fund) market is set to receive higher inflows if a proposal to connect it to Singapore's succeeds.
Shenzhen Stock Exchange and the Singapore Exchange have committed to setting up a cross-border link for ETFs, the bourses said on December 28. The announcement about making ETF markets more accessible to investors across China and Singapore came just a few days after Hong Kong and China’s proposal to add ETFs to the existing Stock Connect Scheme between those two jurisdictions.
“The strong demand for ETFs in Asia underscores the region’s growing role as a global ETF hub and we are excited about the manifold opportunities that this partnership could bring,” Loh Boon Chye, CEO of SGX, said in the statement.
Connecting ETF markets in the Asia-Pacific region looks set to be one of the major investment themes in 2022.
“Exchanges and regulators in Hong Kong, Singapore and Australia have been taking steps to promote growth in the exchange traded fund (ETF) industry as they seek to capitalise on rising opportunities,” according to Neil Macdonald, head of asset managers segment, Asia Pacific at State Street.
To attract more ETF investing, Singapore focused initially on improving market infrastructure, such as deal processing and settlement, to catch up with international norms. It also relaxed rules that initially classified ETFs as complex financial instruments, that were previously restricting investor access, Macdonald added.
The December 28 statement did not discuss a timeline for the launch of a link between the China and Singapore ETF markets.
“Currently, there has been positive progress made in a joint programme between Shenzhen Stock Exchange and the Singapore Exchange, and both sides will actively push for early realisation of connecting the ETF markets,” according to a local media report, quoting Fang Xinghai, vice chair of the China Securities Regulatory Commission, who did not elaborate further on how or when the two ETF markets would be connected.
On December 24, China and Hong Kong bourses agreed to add ETFs to the stock connect scheme between the two jurisdictions, and China’s securities regulator on December 17 announced plans to broaden the Shanghai-London Stock Connect to include capital markets in Germany and Switzerland.
Angelina Ng, executive director for securities services at Capco, believes investment opportunities will come from connecting these schemes further, but noted that some products will get more attention than others.
“This is good news for a Hong Kong equities market that has taken a beating in 2021 and will provide portfolio diversification opportunities to many new investors in Hong Kong and China. I expect to see steady growth of inflows into Hong Kong from China, but not all ETFs are created equal. Interest in Cryptocurrency and ESG will mean that thematic ETFs continue to lead the way,” she told AsianInvestor.
The latest move boosts the ETFs markets in China and Singapore where inflows have grown rapidly in recent years.
The Shenzhen Stock Exchange lists 212 ETFs with a combined market capitalisation of $39 billion
The combined AUMs of SGX-listed ETFs rose 41%. in the year to Nov 30, to SG$1.2 billion, with the number of ETFs and/or ETPs expanding by 17% from 30 to 35, according to Singapore Stock Exchange's data.
In the first 11 months of 2021, a record $1.1 trillion in net inflows made their way into listed ETFs and exchange-traded products (ETPs) globally. Global assets under management (AUM) in these products increased $1.9 trillion, in one year, to $9.9 trillion at the end of November 2021, according to research and consultancy firm ETFGI.